I want to make a few comments in relation to the amendment to item No. 7. This inserts a new provision in part 7.3 of the Corporations Law relating to the licensing of participants in the securities industry. The bill already contains a provision stating that a responsible entity must be a public company with a
dealers licence issued by the ASC under part 7.3 authorising it to operate a managed investment scheme. The amendment inserts a capital adequacy test to be applied by the ASIC in relation to applications for such licences. It allows the ASIC to determine any additional requirements including, but not limited to, a requirement that the scheme property be held by an agent of the licence holder in particular circumstances.

The government has no objection to providing that the ASIC may specify additional requirements and supports its inclusion in the bill. However, the government has been concerned about inserting a capital adequacy test with specified thresholds in the law since it considers that the approach may deprive the ASIC of much needed flexibility and discretion in administering the law.

The government believes that a better approach would be for the law to recognise that the ASIC may apply a capital adequacy test but leave the content of such a test to be determined by the ASIC by way of guidelines for the industry. Nonetheless, the amendment does contain a provision that would allow the ASIC to waive the capital adequacy test, but any such exemptions will need to be detailed in the ASIC's annual report.

The government is still not convinced that the approach in the amendment is the best approach. However, once again, in the interests of delivering the improved regulatory regime contained in the bill as soon as possible, the government has decided to agree to the amendment in its current terms subject to a minor change to rectify a drafting defect. The defect is in the definition of `net tangible assets' appearing in new subsection 784(2C). The definition states, in effect, that `net tangible assets' means the total tangible assets of the applicant for a licence to operate a managed investments scheme less any adjusted liabilities as shown in the latest set of accounts of the scheme lodged with the ASIC.

It is not the scheme's liabilities which should be relevant to determining the applicant's net tangible assets but the applicant's own liabilities. The government's reading of the provision is consistent with a draft policy statement on financial require
ments for responsible entities prepared by the ASC. Accordingly, the government will not oppose the amendment in item 7 once new subsection 784(2C) is amended by substituting the word `applicant' for the word `scheme'.